Question

NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $19,000 and that for the pulley system is $20,000. The firm's cost of capital is 12%. After-tax cash flows, including depreciation, are as follows:

Year	Truck		Pulley
1	$5,100		$7,500
2	5,100		7,500
3	5,100		7,500
4	5,100		7,500
5	5,100		7,500

1. Calculate the IRR for each project. Round your answers to two decimal places.

   Truck:________%
   
   Pulley:________%

2. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

   Truck:________$   

   Pulley:________$  

3. Calculate the MIRR for each project. Round your answers to two decimal places.

   Truck:_______%
   
   Pulley:_______%

Answer 1

a
Truck
IRR is the rate at which NPV =0
IRR	0.106837363
Year	0	1	2	3	4	5
Cash flow stream	-19000	5100	5100	5100	5100	5100
Discounting factor	1	1.106837	1.225089	1.355974	1.5008429	1.661189
Discounted cash flows project	-19000	4607.723	4162.963	3761.133	3398.0904	3070.09
NPV = Sum of discounted cash flows
NPV Truck =	1.74338E-05
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	10.68%
Pulley
IRR is the rate at which NPV =0
IRR	0.25413002
Year	0	1	2	3	4	5
Cash flow stream	-20000	7500	7500	7500	7500	7500
Discounting factor	1	1.25413	1.572842	1.972549	2.4738323	3.102507
Discounted cash flows project	-20000	5980.241	4768.438	3802.188	3031.7334	2417.4
NPV = Sum of discounted cash flows
NPV Pulley =	1.05811E-07
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	25.41%
b
Truck
Discount rate	0.12
Year	0	1	2	3	4	5
Cash flow stream	-19000	5100	5100	5100	5100	5100
Discounting factor	1	1.12	1.2544	1.404928	1.5735194	1.762342
Discounted cash flows project	-19000	4553.571	4065.689	3630.079	3241.1422	2893.877
NPV = Sum of discounted cash flows
NPV Truck =	-615.64
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Pulley
Discount rate	0.12
Year	0	1	2	3	4	5
Cash flow stream	-20000	7500	7500	7500	7500	7500
Discounting factor	1	1.12	1.2544	1.404928	1.5735194	1.762342
Discounted cash flows project	-20000	6696.429	5978.954	5338.352	4766.3856	4255.701
NPV = Sum of discounted cash flows
NPV Pulley =	7035.82
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor